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Opinion | Let RBI do its job: Centre should stop pushing ad-hoc policy changes

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There is increasing friction between the government and the Reserve Bank of India. The government is asking the RBI to review its policies in several areas where the central bank should be allowed to operate without interference. This is not an entirely new fight.

Successive RBI governors after Bimal Jalan have had to fight for operational independence with the finance ministry. But the current set of disagreements comes at a bad time.

Emerging markets in general are under pressure. India is still some time away from achieving financial stability by solving the twin balance sheet problem – bad assets at banks and corporates hamstrung from raising credit. Riding roughshod over the central bank could easily lead to heavy capital outflows and delay the rehabilitation of the banking system.

In its latest demand, the government wants RBI to dilute its prompt corrective action (PCA) framework. This set of norms impose sanctions on lenders preventing them from expanding their business if a set of yardsticks aren’t met. RBI tightened these norms last year. Currently, half the state-owned banks, accounting for at least one-fourth of system bad loans and one-fifth of advances, are under this framework.

Watering down PCA is a bad idea. The first-quarter results of public sector banks show that they are not out of the woods yet. The bad loan clean-up that is taking place still has miles to go. The power sector itself has the potential to add a further Rs 1.75 lakh crore of bad loans.

The fact that PSU banks are still struggling is the purported reason why the government has declined RBI’s request to withdraw its nominees from state-owned bank boards. RBI wants greater power to regulate the state-owned banks rather than placing its people on their boards – a situation that in fact places the bank in a position of conflict of interest. Both Urjit Patel and Raghuram Rajan have commented publicly on it.

In other instances, the government wants to have its cake and eat it too. Take RBI’s 12 February circular, which withdrew a bunch of restructuring schemes and set a strict 180-day deadline for banks to deal with loans that are overdue by even a single day. On the one hand, the government is using this to ask RBI to relax the capital adequacy ratios for banks. On the other hand, it wants RBI to relax the new bad loan recognition and resolution framework for the benefit of power producers.

RBI would do well to ignore both these demands. In 2012, while announcing the new framework, the central bank had insisted on higher capital limits to “address any judgmental errors like wrong application of risk weights, misclassification of asset quality, etc.” It pointed out that even under earlier frameworks, RBI norms were more conservative. In any case, despite this India’s banking system has one of the poorest capital to risk-weighted assets ratio of 13.3 percent, according to IMF data.

Higher capital norms are also required because while the stock of bad loans is being addressed, there are no indications that the credit culture in India is improving. If banks continue to ‘extend and pretend’, it is better that they maintain a higher capital buffer. In that context, the 12 February circular is important because it tries to address this very problem of a corrupt credit culture. If RBI caves in to government or Supreme Court diktats and relaxes these norms for the power sector, what’s to prevent a different industry tomorrow from seeking such handouts? That will undermine the sanctity of the debt contract and also the insolvency and bankruptcy code, one of the biggest reforms in recent times.

All these demands smack of adhocism. They are driven by the need to meet the fiscal deficit target. Diluting the capital adequacy norms will free up some Rs 60,000 crore in capital. The government is on the hook for a promised Rs 2.11 lakh crore capital infusion in PSU banks over two years, a large part of which is to be raised from the market. Getting banks out of PCA would help some of them in actually raising these funds from the markets at decent valuations. Similarly, a relaxation for the power sector means that PSU banks won’t have to set aside large provisions which will eat into their capital base. They will be able to show better bad loan numbers too.

That’s on the government spending side. On the revenue side, it expects more dividend from RBI. The government wants RBI to review its dividend policy, perhaps setting aside a fixed portion of its surplus. The government also seems to believe that RBI is being more prudent than necessary by transferring part of the surplus to its contingency reserve and asset development fund over and above what’s needed. However, with RBI being responsible for financial stability, these reserves are an important part of its arsenal to absorb financial shocks. If the government amends the RBI Act to force the central bank to cough up more dividend, it will set a dangerous precedent.

This is not to say that there is no need for debate about the effectiveness of RBI’s regulation over the banking system. RBI should be set to high standards and taken to task if it fails. But the correct way to change policy would be set clear goals and objectives – the flexible inflation targeting framework is a great example – and allow RBI the operational room to do its job. Policy changes that seek to compensate for laxity on the government’s part are retrograde.

IBC has put recovery process on fast track: FICCI Survey

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Insolvency and Bankruptcy Code (IBC) has put the debt recovery process on fast track and improved the position of banks, according to a FICCI survey.

Banks which participated in the survey highlighted that IBC has also increased promoters' willingness to come forward for resolution at an early stage of default.

To improve the resolution process, bankers suggested further enhancing of capacity, strengthening of the judiciary and empowerment of local level government officials, the seventh round of the FICCI-IBA survey said.

Participating in the survey, 22 bankers suggested that extension of moratorium beyond 270 days should not be permitted.

"They also suggested increasing the tenor of debt for companies that have viable businesses but are currently suffering from over-leveraged balance sheets, along with a moratorium period," the survey said.

"The IBC has shown success with the resolution of stressed assets even as the law continues to evolve. Banks continue facing challenges in lending even as GDP growth has bounced back while CPI inflation faces upward risks in the form of rising oil prices and increasing government expenditure," it said.

About 67 percent respondents have reported tightening of standards, steeply increasing from 28 percent in the last round of the survey.

In the first half of 2018, RBI hiked the repo rate by 25 basis points in June 2018.

As per the survey, over half of the respondents (55 percent) have increased their MCLR by up to 20 basis points during the period Jan-Jun 2018. Further, 27 percent of respondents increased MCLR by more than 30 basis points. Since then another hike in repo rate by 25 basis points was announced.

In case of term deposits, 41 percent respondents increased their rates by more than 50 bps on term deposits of tenure below one year, while 50 percent did so for term deposits of one year or above.

In view of the inter-departmental group set up to study the feasibility of the introduction of a central bank digital currency (CBDC) formed by the RBI, bankers highlighted the benefits from CBDC.

Introduction of CBDC would increase digitization and greater competition between banks for deposits, benefitting depositors, it said.

"Amongst the key areas of concern, respondents flagged the risk of an increase in illegal transactions, cybersecurity threats, its use for speculative gains and effects to profitability and business model of banks.

Are potential hires ghosting you? HR firms find a solution

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A Bengaluru-based start-up was left clueless when a potential hire never turned up to collect his offer letter. He could not be contacted on his phone or e-mail. This was because he had ‘ghosted’ the company after being retained by his current employer.

Ghosting, a phenomenon where potential employees suddenly cut off all communications during the last stage of negotiation, is now being tackled through manual interventions and use of artificial intelligence (AI).

In India, about 35 percent potential hires drop off the talent acquisition pipeline. This means out of every 10 hires, about 3-4 people ghost the employer. Ghosting occurs either because the candidate has a better offer or has been retained by his employer.

Chennai-based AVTAR Group has launched a consulting firm Bruhat Insights Global that will use AI and big data to tackle ghosting and increase offer acceptance ratios.

Saundarya Rajesh, Chairman, Bruhat Insights Global, said ghosting leads to severe time-lags in the market plans of start-ups and entrepreneurs and results in loss of revenue for both businesses and the recruitment fraternity.

Of dates and uninterested partners

Ghosting as a term originated in the dating world and referred to a situation where a romantic interest suddenly stops all forms of communication with the other person.

The recruitment market in India is estimated at Rs 3,100 crore, according to EY Human Resources Solution Industry study. Rajesh said if the potential revenue loss of about Rs 1,000 crore caused by ghosting is reduced even by 50 percent, the industry stands to gain a whopping Rs 500 crore.

In India, the average cost to hire varies from Rs 25,500-Rs 50,000 per candidate depending on the industry and sector. This includes the cost of the internal talent acquisition team, the cost of subscribing to databases, retainers to search firms, success fees paid to consultants, among others.

Rajesh added that when candidates drop off the radar after engaging with the company in sectors like small and medium enterprises (SME) and start-ups it is a cause for concern. She said the company will use both AI as well as manual interventions to gauge the interest of candidates.

Using AI

The process will begin from the time a candidate’s resume reaches the recruiter. Rajesh said they will create an offer acceptance score for the shortlisted candidates based on the data collected. Softer aspects of the candidate’s life including profession of spouse, permanent residence among others. Past instances of a candidate ghosting companies are also taken into account.

“When we used the AI powered selection mechanism for the positions sourced, we experienced a 300 percent jump in closures,” she said. It is not just start-ups and SMEs where ghosting is an issue, but sectors like IT/IT enabled services as well.

Human resource experts are of the view that a mix of technology-led interventions and regular interactions could be a solution.

Rohit Chennamaneni, co-Founder of HR platform Darwinbox, said during the final stages of recruitment they have manual interventions through calls to candidates. This, he said, ensures that the candidate is still interested in the job role. Any adverse reaction or weakening interest from a potential hire is then immediately communicated to the company.

“Body language as well as how enthusiastic a potential hire is gives an idea of whether they will ghost the company. Timely interventions minimise ghosting incidents and give early indications to the employer. If the candidate is not interested, they can dole out job offers to the other interested individuals,” he added.

Jobs galore ahead of festive season; 15,000 e-commerce openings up for grabs

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Around 15,000 jobs are up for grabs as e-commerce companies in India look to increase their manpower for last-mile delivery before the festive season begins.

From August to January, when India celebrates a range of festivals, including Raksha Bandhan, Ganesh Chaturthi, Id-e-Milad, Diwali, Christmas and New Year, e-commerce companies sell goods worth around Rs 10,000 crore. The sector currently employs around 1 million people.

Sources said that the large e-commerce firms like Amazon and Flipkart have already begun large-scale hiring to meet the festive demand. A large proportion of the hires could be in the warehousing and delivery segments.

After reassessing the demand again at the end of September, these companies would have a second look at their manpower and hire additional staff, especially delivery executives, if necessary.

For those wanting to apply for delivery executives' posts, basic knowledge of English, knowing the local language and knowing how to ride a motorcycle would largely be the requirements.

Mayur Saraswat, Business Head (North), TeamLease Services, said that there will be a jump of 30-35 percent in manpower during the festive season.

"This is a golden era for e-commerce and the sector will touch $ 200 billion by 2022. A lot of demand from Tier 2,3 as well as rural areas will drive the jobs," Saraswat said.

With the rise in demand of products and the increase in sales during the later months of the year, salaries have also gone up.

Saraswat said that unlike a year and a half ago, when delivery executives were getting paid around Rs 8,000 a month, they are now getting paid around Rs 18,000 a month.

During the festive months, incentives, including bonuses, gift coupons and spot rewards for meeting targets are also provided to delivery executives.

This is also because the rate of attrition in this segment is much higher and touches 40-45 percent during busy months, primarily because companies actively poach from each other.

Local hiring could also be boosted during the festive season, since cash-on-delivery has increased the overall proportion of purchases from rural areas.

Unlike in other sectors, where robotics has taken away jobs, Saraswat said that getting robots to the shop floor in areas like warehousing during sale-heavy festive seasons will lead to better efficiency and positive margins, thereby pushing salaries higher.

Going forward, he said that new partnerships like Flipkart-Walmart would also add to the number of new jobs available in the sector.

The jobs that are currently on offer include both temporary and permanent positions. The temporary staff numbers will be higher, since they work only for 5-6 months.

LIC banks on 'crisis manager' VK Sharma to steer IDBI

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When Karnal, a region in Haryana beat even metro centres to collect the highest premiums for Life Insurance Corporation (LIC) in the late 90’s, all the senior management at the insurance behemoth sat up and took notice. Behind this was a senior divisional manager called Vijay Kumar Sharma. More than 20 years later, LIC will buy controlling stake in a large public sector lender. The man behind the deal is the same; this time he happens to be the LIC chairman.

The Cabinet Committee of Economic Affairs (CCEA) on Wednesday approved LIC’s proposal to own controlling stake in state-owned IDBI Bank. The move paves way for LIC to acquire 51 percent in the public sector bank consequently taking the government's stake down from the current 80.96 percent to around 45 percent.

When several questions over the deal and LIC's ability to help the bank clear out its non-performing assets arose, company insiders said Sharma was convinced that it would be a good investment opportunity. In fact, Sharma, who turns 60 this year, was among the first at LIC to dream of a banking licence as early as 2013 as the chief of LIC Housing Finance.

It was Sharma’s conviction that led to the proposal reaching the insurance regulator’s table. After getting a green signal from Insurance Regulatory and Development Authority of India (IRDAI), a go-ahead from the cabinet was the next step. With all the major hurdles cleared, it is only a matter of a few months that IDBI Bank will be a subsidiary of LIC.

Early days at LIC

‘Go-getter’ is a term that peers associate the 59-year-old who has spent 37 years at the insurer. A postgraduate in Botany from Patna University, Sharma joined LIC as a direct recruit in 1981. He moved across the country studying LIC’s different businesses and zonal business strategies, working his way up the ladder in areas spanning pension, group schemes and zonal operations.

In 2007, he was elevated to the rank of executive director. The country was grappling with the lack of social security schemes and the Aam Aadmi Bima Yojana was launched for rural landless households. LIC was given the mandate for managing the project and Sharma led the charge.

Sharma soon took the role of LIC’s zonal manager in-charge of the southern zone, and was able to turnaround the operations and make it the number one zone in terms of business in 2010.

Move to LIC Housing Finance

Sharma took charge of LIC Housing Finance, as Director and Chief Executive in December 2010. He was elevated to the post of Managing Director and CEO in March 2013. Considered an internal favourite, peers said that Sharma was an easy choice for the top post.

This was a time when LIC Housing Finance was facing competition from large financial companies in the home loan segment. When he took over, LIC’s loan book was around Rs 46,400 crore. Under his leadership, this jumped by 80 percent to Rs 83,200 crore by mid-FY14.

Till then, LIC HFL was considered a traditional player. Sharma took on the mandate of re-branding the entity and also improve the technological efficiencies of the entity. Under him, LIC HFL’s net-worth more-than-doubled from Rs 3,390 crore from Q2FY11 to Rs 6,828 crore in Q2FY14 just before he moved back to LIC.

Sharma’s aspirations also grew larger. He wanted LIC HFL to become a bank. They did apply for a licence but were not granted permission to start banking operations.

Back to home turf

Sharma was appointed as LIC’s managing director in November 2013. Looking at the business strategies of the insurance company, he pushed the initiatives of financial inclusion and insurance products for BPL families.

Less than three years since Sharma took up the MD post, a mini-crisis hit LIC. In June 2016, S K Roy resigned from the LIC chairman citing ‘personal concerns’ two years before completing his tenure. Amid a volatile situation, Sharma was made the officiating chairman to assuage investor concerns.

Being one of the largest investors in the equity markets with about Rs 50,000 crore being pumped into the equity markets every year, a ‘headless’ LIC was not seen as a positive cue. Sharma was brought in to cool off the uncertainties that arose from Roy stepping down.

Turnaround of LIC

At the close of FY15, new business premium collections at LIC dropped 14 percent, whereas private life insurers had seen a growth of 18 percent. Questions were raised on the relevance of LIC in the market and whether it was losing steam in the wake of aggressive competition from private peers.

Sharma officially took over as LIC chairman in December 2016 and proved critics and doubting Thomases wrong. The insurance company ended FY17 with a 27 percent growth in premiums, beating the private sector peers. The message was clear: LIC is not losing out soon.

But company executives said that Sharma always regretted the fact that they weren’t granted a banking licence. Around the same time, the Reserve Bank of India (RBI) had said that they were open to considering a process of on-tap licences for interested entities. So all hopes were not lost.

PIL against LIC

Being a large entity, the decisions of LIC to invest in companies like ITC have been questioned. A public interest litigation was filed in the Bombay High Court saying that LIC being a life insurance company should not be investing in tobacco firms.

Sharma defended the move saying this was a purely investment decision and that they have been investing in companies across sectors.

Another area where Sharma has been prodded constantly is the perception that LIC is the bailout agency of the government. Be it large public issues by state-owned entities or any disinvestment in government entities, LIC has been a large player in such instances.

Sharma, however, has consistently maintained that these are independent decisions by LIC based on the merits of the investee company. Meanwhile, outsiders maintain that most of the decisions are still dictated by the government.

LIC has often been considered opaque with respect to investment decisions. While Sharma has made statements on a few occasions about them investing into certain sectors, a more transparent approach would be a welcome change. Until then, questions will loom large on the exact reasons why LIC buys a large chunk in all government-led company investments.

IDBI takes centre-stage

Early in FY19, a proposal had floated about IDBI Bank being put on sale. The government, on one hand, was looking to reduce its stake in the bank. On the other hand, sources said that they wanted to ensure that the bank was in good hands.

As various structures and instruments were being discussed, LIC entered the fray. It was the much needed second chance for LIC to own a banking entity and acquiring a large bank meant that they did not have to start from scratch.

LIC unions, on the other hand, have questioned the move. A senior union member said that this would mean that LIC is indirectly recapitalising an ailing bank. The unions have also maintained that this is detrimental to the policyholders, since the IDBI Bank buy is being made out of the premium money collected.

"Sharma should have first brought all stakeholders on board, especially the unions, before making the proposal official. Without this, there is bound to be tough protests," said a senior company executive.

While Sharma believed that the IDBI Bank deal was a ‘win-win’ proposition for both LIC, the policyholders as well as the government; not everyone is convinced especially since IDBI Bank has issues of large bad loan. Unlike his predecessors who would not be very vocal about their decisions, his peers said that Sharma ensures that he is firm with his decisions, irrespective of whether everyone supports him or not.

Private insurers have also suggested that LIC still gets preferential treatment and has been granted exceptions over and above the 15 percent investment limit. However, Sharma has defended this by saying that they are a large entity.

All the past LIC chairman have talked about the legacy of the institution and how it is distinct from the private sector peers, Sharma for the first time assured the market that they will bring down the stake in all entities to the 15 percent threshold.

While this may not be the perfect solution, it has brought some temporary calm to the private sector.

Will IDBI Bank see a turnaround?

For the IDBI Bank deal, with the cabinet nod coming in, the last few procedural approvals from Securities and Exchange Board of India as well as RBI will be the last leg of the deal. Sharma, who still has three more years as chairman will be the sole responsible person for the bank’s turnaround as well.

IDBI Bank’s net loss for the March quarter of FY18 widened to Rs 5,662.76 crore year-on-year (YoY) on weakening asset quality and rise in provisions. During the quarter under review, IDBI Bank's provisions for non-performing assets rose by 77.9 percent to Rs 10,773.30 crore as against Rs 6,054.39 crore in the year-ago period.

A man who is called ‘crisis manager’ by his LIC colleagues, Sharma will have to do a repeat of his past successes, and bring down the bad loans and get the bank back on track on the profitability front. How soon will he be able to do it? This is an answer that the market is seeking with a baited breath.

ASSOCHAM cautions against over-regulation in e-commerce space

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Over-regulation of the e-commerce sector could stifle the growth of entrepreneurship, industry body ASSOCHAM has said and cautioned micro managing of prices by the government could lead to inspector-raj.

E-commerce and the entire online space is a fledgling area of business with a vast scope for expansion, ASSOCHAM Secretary General D S Rawat said.

"While there should be rules of the game for any trade, over-reach and over-regulation should not be resorted to as it could stifle the growth of entrepreneurship," he told PTI.

An initial draft circulated among stakeholders for discussion to frame a national e-commerce policy has suggested to introduce a pre-set timeframe for offering differential pricing or deep discounts by e-commerce players to customers.

The suggestions are part of the strategy to address anti-competitive issues in the e-commerce sector effectively.

"The restriction imposed on e-commerce marketplace, to not directly or indirectly influence the price of goods and services, would be extended to group companies of the e-commerce marketplace.

"A sunset clause, which defines the maximum duration of differential pricing strategies (such as deep discounts) that are implemented by e-commerce platforms to attract consumers, would be introduced," the draft said.

Rawat said: "Deep discount or no discount is a commercial decision; as long as it is not resorted to in sectors like banking, insurance or other highly sensitive sectors, the decision should be purely commercial".

Besides, he said the deep discount and cash burning should be the prime concern of the promoters, venture capitalists and private equity funds betting on online entrepreneurs.

"Eventually, those with sound business models would survive; there would be churning, which has already started," Rawat said.

No micro managing of prices or other business practices should be encouraged; or else it could lead to inspector-raj in the cyber and online world as well, he added.

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